Making a Bad Business Case Worse: Durbin and Mobile NFC

We keep hearing that mobile payments are coming, but to date there has been more light than heat. Why is this? In a previous Celent report,The View from the Mobile NFC Finish Line: Bank Economics in a Mature Mobile NFC Payments World, September 2009, Celent made the case that NFC payments were not in the interest of the established players. The upside, incremental interchange fees based on increased usage of debit cards, would generate about $3.25 per card per YEAR in incremental revenue to the bank. After netting out the incremental expense of NFC, including over the air provisioning, customer service, and SMS fees, the net revenue to the bank was under two dollars per year. In this model we assumed a debit interchange rate of $0.04 + 1.55%, VISA's small ticket interchange. A $20 purchase would generate $0.35 of interchange. Well those days are fading fast. Durbin will drop that $0.35 to $0.12, dropping the incremental revenue to about $1.10. Mobile NFC then becomes a money losing activity for the large banks rather than merely one that generates uninspiring returns. Where does Celent see an opportunity for mobile NFC? In closed loop retail payment systems. Starbuck's launched a mobile (non-NFC) payment system using scanner technology, and it's taken off like wildfire. Other retailers, looking for ways to generate loyalty, avoid interchange, and understand their customers even better, may well follow suit.